Shares of Regal Hotels International Holdings rose yesterday after the company confirmed it was considering a proposal to set up a real estate investment trust.

The medium-sized hotel owner jumped 3.03 per cent to touch a nine-month high of 68 cents with turnover of $89.17 million.

Regal announced that it might list a reit involving the group's hotel properties, but added that the proposal was still in a preliminary stage and no final decision had been made.

Market sources, however, said the company had already mandated Merrill Lynch and Deutsche Bank to arrange the deal.

It is understood that the hotel reit could be launched by the end of the first half, raising about $4 billion.

If successful, it would become the first hotel-based reit in Hong Kong. The three previous reits - the Link Reit, Prosperity Reit and GZI Reit - mainly comprise retail, office and industrial properties.

Market watchers, however, cast doubts on the feasibility of the spin-off as hotel operations are the core business of the company.

'If the company spins off its hotel assets, what else will they have? They may encounter regulatory approval hurdles during the process,' one analyst said.

Regal runs the Oriental, Riverside, Airport, Hongkong, and Kowloon hotels with a total of 3,350 rooms and 38 restaurants and bars.